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What Hal Steinbrenner and Kim Jung-Il Have in Common: Lessons in Brinksmanship |
By MICHAEL C. DORF |
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| Tuesday, November 30, 2010 |
By MICHAEL C. DORF
Consider two seemingly unrelated dramas: first, the ongoing contract negotiations for longtime Yankees shortstop and team captain Derek Jeter; and second, the artillery and verbal barrages that North Korea unleashed against South Korea last week.
Although the late George Steinbrenner was a notoriously dictatorial boss, he was not, of course, an actual dictator, nor are his sons, Hank and Hal Steinbrenner, who have succeeded him as the heads of Yankeedom. Nonetheless, comparing the negotiating posture of Hal Steinbrenner and the Yankees with the recent military outbursts from North Korea--and its own father-and-son team of Kim Jung-Il and Kim Jong-Un--will prove instructive.
In each case, there is a strong element of brinksmanship. Cold-War-era game theory shows why it may be difficult for the relevant players in both circumstances to act rationally.
The Jeter Negotiations
At 36, Yankees shortstop Derek Jeter appears to be a future Hall-of-Famer in decline. Last season, he batted just .270, substantially below his career average. Although he won a 2010 Gold Glove award for his low error rate in the field, many experts regard Jeter as a sub-par defensive shortstop. Yes, he is sure-handed and throws accurately, but he never had great range and his mobility has diminished over the years: According to these critics, Jeter makes few errors because he does not come close to ground balls that more mobile shortstops routinely convert into outs.
So, how much money is Jeter worth? Last year, he earned $22.6 million, and his agent would now like to sign Jeter to a long-term contract for a similar figure. The Yankees have offered Jeter three years at $15 million--a pay cut, to be sure, but still more money than All-Star shortstops for other teams will make. As of last week, Hal Steinbrenner and Yankees General Manager Brian Cashman essentially told Jeter to take it or leave it: If he thinks he's worth more, they suggested, he should solicit offers from other teams.
It is relatively straightforward to predict how these negotiations should conclude: The Yankees and Jeter ought to agree to terms. Whether they will conclude that way remains to be seen, however.
Why should the Yankees and Jeter reach a deal? No matter what team Jeter plays for, he is more valuable than his statistical profile alone suggests. Jeter's competitive spirit, his leadership, his clean-cut image, and his seeming knack for making great plays when they are needed most, all make him more than the sum of his run production and defense. So any team ought to be willing to pay Jeter a bit more than his statistical equivalent.
But the Yankees, in particular, should be willing to pay Jeter a lot more. As Yankees captain and a major contributor in each of the five Yankees' championship seasons over the last decade and a half, Jeter personifies the latest version of the Yankee dynasty. Even more than the other three members of the "core four" who played for each of those championship teams--closer Mariano Rivera, catcher Jorge Posada, and starter Andy Pettitte--Jeter's presence on the field and in the locker room makes credible the claim that the Yankees are the same team today that they were in 1996. To many Yankee fans, the notion that the Yankees would permit Jeter to finish out his career playing for any other team is heresy. Accordingly, Jeter should be able to command a "Yankees premium."
How Should the "Yankees Premium" be Divided?
How large should that premium be? It is hard to say for sure, but I'll plug in some arbitrary numbers, simply for illustrative purposes. Suppose that the Boston Red Sox are the next-highest bidder for Jeter's services, and that they value him at $12 million for each of three years. If so, then shouldn't Jeter happily take the Yankees' offer of $15 million for each of three years? Not necessarily.
For simplicity, I will ignore the fact that Jeter would also like a longer-term contract than the Yankees appear to want to give him, and I will focus only on dollars. Let us imagine that the "Yankees premium" is $8 million per year for three years. That is, given Jeter's pre-existing connection to the Yankees, his value to the team--in ticket sales, merchandise, and so forth--is actually $20 million per year, or $8 million more per year than the Red Sox are willing to pay him. How should Jeter and the Yankees split the Yankees premium? The answer depends mostly on the skill of the negotiators.
Using the scenario I have assumed, the Yankees' last best offer would give Jeter $3 million of the Yankees premium, while keeping $5 million of it for themselves. Jeter would understandably hold out for more of the premium because, by hypothesis, if the Yankees let Jeter go rather than pay him anything less than $20 million per year for three years, they are leaving money on the table.
But Jeter has very little leverage, because even the three-eighths/five-eighths split that the Yankees have offered would pay Jeter $3 million more per year than the next best offer he can get. So the rational thing for Jeter to do, if the Yankees really stick to their guns, is to take the take-it-or-leave-it offer. Right?
That depends on what one means by "rational." Even though the Yankees could pay Jeter more than any other team while still effectively lowballing him, Jeter in fact does have a credible threat to play for another team. After all, Jeter is already fabulously wealthy by any normal standard, and what he would be paid by the Red Sox or any other team is still an obscene amount of money.
Indeed, we might regard the negotiations as less about money qua money than about money as a marker of value. Yankees third baseman Alex Rodriguez--who is only a year younger than Jeter--signed a 10-year $275 million contract just three years ago. Jeter, whose relationship with Rodriguez is complicated, to say the least, might well consider the Yankees' latest offer an insult, in light of A-Rod's contract. Following the lead of former Yankees manager Joe Torre, Jeter could bolt because of what the contract offer signifies, rather than because of its terms as such.
A Cold War Analogy
If Jeter really would rather play for another team for less money than have the Yankees pay him less than Rodriguez, then he has probably played his last game in a Yankees' uniform. But even if the negotiations are mostly about the money, they could still end badly. To see why, it may be useful to consider an analogy to nuclear deterrence.
During the Cold War, American strategic planners worried a great deal about how to make credible threats. At the time, U.S. and NATO military strategy called for the possible use of nuclear weapons against the Soviet Union if the latter invaded western Europe. But actually using nukes would have been catastrophic. If the Soviets had invaded what was then West Germany, and the U.S. had responded by nuking Moscow, the Soviets in turn would have launched an all-out nuclear war. Tens of millions of people on each side would have been killed, and much of the planet would have been rendered uninhabitable.
Given that using nuclear weapons against another nuclear state is a no-win proposition, the Americans had a serious problem: How to make a credible threat that the U.S. would in fact use nukes in response to an invasion by conventional forces? Wouldn't the Soviets anticipate that in the face of an actual invasion, the Americans would prefer to see a hammer and sickle flying over Munich, than witness a mushroom cloud over Chicago?
Cold War strategic planners faced a similar dilemma with respect to the risk of a Soviet first strike. Once each country developed missiles capable of dropping multiple warheads, each side had an incentive to launch a first strike. The surprise launch of a single American missile carrying ten warheads could take out ten Soviet missiles in their silos, each containing ten warheads. This created a hundred-fold use-it-or-lose-it advantage to launching a first strike--an incredibly unstable situation in which each side had an incentive to launch if it thought the other side was about to launch.
An important factor in undercutting the first-strike logic was the ability of each side to persuade the other that its leadership was vindictive or crazy. Thus, American strategic doctrine provided that even after the nation had been reduced to smoldering radioactive ruins, surviving U.S. commanders on bombers and in submarines would nevertheless launch whatever warheads they had left, thus ensuring that the military benefits of a Soviet first strike would be more than offset by millions of civilian deaths--even though, at the point of an American retaliatory launch, the U.S. would gain nothing from these deaths. (Here, it warrants mentioning that U.S. Cold War policy of threatening massive retaliation was arguably a systematic violation of international law, insofar as the policy targeted civilians.)
Just as with respect to the defense of western Europe, to deter a Soviet first strike, American military and civilian leaders had to persuade the Soviets that we were the sort of people who would do the unthinkable. Likewise, the Soviets had to persuade the U.S. of their reciprocal insanity.
And so it is--on an infinitely smaller scale--with Derek Jeter and the Yankees. In order for Jeter to extract a larger fraction of the Yankees premium than is currently on offer, Jeter must be able to persuade the Yankees' front office that he would bite off his nose to spite his face. The best way to make that threat credibly is to talk as though these negotiations really are about his pride, rather than being about the money per se. In short, the very fact that Jeter might really resent being offered so much less money than A-Rod enables him and his agent to say, with straight faces, that he will walk if the Yankees do not substantially improve their offer.
Avoiding War on the Korean Peninsula
While the Jeter negotiations bear a structural resemblance to Cold War brinksmanship, the current crisis on the Korean peninsula recalls actual Cold War fears of nuclear war. Indeed, although North Korea currently has a much smaller nuclear arsenal than the Soviet Union had during the Cold War, in an important sense, the Korean showdown is more dangerous.
During the height of the Cold War, the Soviet Union was led by communist ideologues who acted ruthlessly towards millions of their own people, but these leaders were ultimately rational. We in the West deplored the aims of Khrushchev and Brezhnev, but we could count on them to take measures reasonably calculated to advance those aims.
That does not appear to be so with respect to Kim Jung-Il or his designated heir, Kim Jong-Un--although so little is known about the latter that it is at least possible that he could prove more rational than his father. At least for now, however, Kim Jung-Il appears to be calling the shots, and so we must try to predict his next moves.
It does appear that Kim Jung-Il would like to remain in power and to see his son succeed him, but beyond that, little about the Kims' motives can be inferred from their conduct. Consider two fundamental questions: First, why did North Korea torpedo a South Korean submarine in March? Second, why did North Korea launch an artillery barrage against the South Korean Yeonpyeong Island last week?
Theories abound, but all are highly speculative. And without knowing a lot more about what drives North Korea, it is very difficult to predict how the country will respond to various counter-measures. Anything from backing down to launching a nuclear attack seems possible.
Possible Motives for the North Korean Attack
Perhaps North Korea should be taken at its word: It was responding to what it regarded as South Korean threats against its territorial integrity. But if so, that only raises the further question of why North Korea rejects international conventions regarding the line of naval demarcation. More importantly, if North Korea really did act in response to a perceived threat, then the U.S. response of sending an aircraft-carrier group to the disputed region could well lead to escalating violence.
Another theory holds that North Korea's recent increased bellicosity aims to punish South Korean President Lee Myung-bak for the harder line that he has taken, relative to his predecessor. In this view, the North is essentially blackmailing South Korea and other regional powers into providing it with desperately needed humanitarian aid: Give us money, Kim Jung-Il says, or we will kill your sailors and civilians. But even if that view correctly describes the North's motives, it is hardly clear what policy should be adopted in response. Appeasement could satisfy Kim Jung-Il, or it could simply whet his appetite for more extortion.
According to yet another theory, the recent uptick in North Korean aggression mostly addresses an internal audience. In this view, Kim Jong-Un, having recently been promoted to a position of military leadership, must demonstrate to senior military officials that he has the requisite toughness to rule the country after his father leaves office or dies. By way of comparison, think of street-gang initiation rituals that require a young member to commit a murder as a means of binding himself to the gang.
If the gang-initiation story is correct, then it would seem that South Korea and the rest of the region could simply wait out the succession struggle. It would be better, in this view, to absorb some North Korean attacks during the transition period, than to retaliate in a way that brings on all-out war. But here, too, there is enormous uncertainty: Kim Jong-Un could end up ruling North Korea for most of the next sixty years. Is it really a good idea for him to learn from his formative military-leadership experience that he can get away with clear aggression?
As with so many of the world's trouble spots these days, so too with respect to North Korea: There are no good options, only less bad ones.
Information Asymmetry
Whether the underlying issue is a baseball player's salary or war, other things being equal, the course of negotiations is most predictable when all sides have the same knowledge base. Information asymmetry confers a negotiating advantage, especially when the asymmetry concerns what one party wants.
Suppose you tell your boss you may go work for a competitor if you do not receive a ten percent raise. If your boss knows that you really would not take the other job, then she will be unlikely to accede to your demand (unless she has some other reason for giving you the raise). Thus, it is in your interest to reveal as little as possible of your true motives and plans when negotiating.
The uncertainty surrounding the question of whether Derek Jeter really would go play for another team ensures that he can extract some of the Yankees premium, if he drives a hard bargain. But in the end, his leverage is limited.
Meanwhile, Kim Jung-Il's very irrationality makes him quite unpredictable, and thus gives him the upper hand in any diplomatic efforts to resolve the Korean crisis. Indeed, merely getting North Korea to a bargaining table would be a major accomplishment. In this domain, very bad behavior is rewarded--unless you happen to be one of the millions of people suffering under Kim's oppressive rule.